Business

Why stock markets are feeling fidgety

FRENETIC trading could stick around a little longer in Singapore and global equities this week with persisting concerns over potential trade wars and a more aggressive US monetary policy that could keep risk appetite deep in check.

US stocks pared their losses last Friday after a massive sell-off the day before following US President Donald Trump's vow to impose severe tariffs on steel and aluminium. But this could offer little comfort as it may just be another bounce in a highly volatile environment.

The Dow Jones fell 0.3 per cent last Friday and is down 3 per cent on the week. It is in negative territory for this year.

The S&P 500 and tech-heavy Nasdaq snapped a three-session losing streak last Friday and climbed 0.5 per cent and 1.1 per cent respectively.

The markets are nervous that the US's major trading partners could retaliate after Mr Trump doubled down in a tweet that the US was "losing many billions of dollars on trade with virtually every country it does business with, trade wars are good and easy to win".

Already, there has been a war of words between Mr Trump and the European Union. Anxiety could escalate with more details on the tariffs expected to be unveiled this week.

That, and the fear of more aggressive tightening in the US following Federal Reserve chairman Jerome Powell's upbeat view of the world's largest economy has more or less halted the aggressive buying enjoyed in January.

"February wiped out most of what a memorable January had put into markets," said Julius Baer's research head Christian Gattiker.

"Back to square one at best was the bottom line for investors looking at the first two months of the year. The debate remains around the severity of the inflation pick-up. The new Fed chairman's hearings and inflation gauge releases were not fit to bring back confidence to risk assets though," he added.

There are several key headline risks ahead. Brexit jitters could linger following British Prime Minister Theresa May's watershed "life-is-going-to-be-different" Brexit speech last Friday with a somewhat conciliatory tone on the Irish border. The border dispute has eroded market optimism over a "soft Brexit" outcome.

Attention will also be on the outcome of the weekend's elections in Italy after a divisive campaign.

A significant event to watch is China's key political consultative conference that began over the weekend and is a prelude to the more important National People's Congress in Beijing.

"We expect some adjustments to this year's economic targets while keeping with proactive fiscal policy and prudent monetary policy, and the government accelerating its economic reform and restructuring plans and looks for ways to prevent systemic and financial risks," said UOB Kay Hian.

Analysts also expect China to take a stance, although they expect it to be measured despite the string of provocations, on Mr Trump's tariff policy which they say would be crucial for Asian markets.

A string of central bank meetings are on this week's calendar, starting with the Reserve Bank of Australia on Tuesday, followed by Bank Negara Malaysia and Bank of Canada on Wednesday.

The European Central Bank (ECB) and Bank of Japan - both had strongly inspired tightening expectations at the start of the year - also decide monetary policy on Thursday and Friday respectively, IG Markets' Jingyi Pan pointed out.

"No changes are expected from all of which, though forward guidance particularly from the ECB may be of interest with more hawkish intonations anticipated," she added.

In the pipeline are trade data from Malaysia, Australia, the Philippines and Taiwan, fourth quarter gross domestic product from Australia, and China's Caixin Services Purchasing Managers' Index , trade and inflation data. In the US, the labour market report will be out on Friday, with the focus on wages.

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